Lifeline for Jet Airways
The aviation ministry has also moved a file asking the finance ministry to help the sector on the whole with some sops.
Airline losses have shot up this fiscal, and India's oldest private airline Jet Airways — the weakest of the pack — is making losses of INR14 crore a day.
Jet Airways chairman Naresh Goyal has already visited the aviation ministry, but Choubey says he "has not approached us for any relief".
"We are working on a package," the secretary says without getting into what is being sought. "The broad contour of the package is, what can we do to bring down the cost of operations of airlines?"
Will this be a temporary relief, or something that permanently changes the cost structure of the industry?
"We would like it to be a permanent change," Choubey says.
The biggest cost for airlines is fuel, which is heavily taxed in India. Bringing jet fuel under the GST (goods and services tax) regime and taxing it at 12% could significantly reduce the burden on the airlines.
The aviation secretary also hints that the government will not like to see any airline shut — least of all in an election year. "We would like airlines to keep competing with each other in a manner in which extreme cost inefficiencies don’t hamper their profitability," he says.
Earlier, the government had thrown a lifeline to Ajay Singh's SpiceJet and saved it from meeting the same fate as Vijay Mallya’s Kingfisher Airlines.
While a decision on the relief package for the sector is expected by the end of this month, it won’t be easy to dole out when petrol prices have crossed INR90 a litre in many parts of the country, and Opposition parties are staging protests, demanding petroleum products to be brought under GST.
If the government is able to agree to this package, it could make airfares even cheaper as airlines’ costs will drop suddenly.
A former executive director of Air India, Jitender Bhargava, says any reduction of taxes in other areas could also help the sector. “If the government comes up with a package to reduce operational costs of airlines, it will be a welcome intervention. As it has belatedly recognised the aviation sector as a catalyst for economic growth and a convenient and affordable means of transportation, making airlines financially viable is of paramount importance.
“This could be achieved through lower taxation on ATF (aviation turbine fuel), abolition of service tax on tickets, the government bearing the cost of security at airports instead of the airlines [extracting it from passengers], better lending terms, etc.”
An airline official who does not wish to be named says the government is considering giving some help in loan restructuring besides pushing for the GST umbrella, but adds both are difficult to secure given its priorities.
The untouchables
The ministry is also treading the last lap cautiously and sidestepping most controversial issues.
For example, it does not plan to put any restriction on how many planes airlines can bring to the market, despite some analysts calling for caution owing to the heavy losses triggered by airlines’ massive capacity augmentation.
"We are not putting any cap on capacity because of its huge financial impact for airlines by way of penalties to aircraft makers and lessors," Choubey says.
There are also no plans to place fare caps to prevent any predatory pricing, which the ministry feels should fall under the purview of the Competition Commission of India (CCI). The question of any potential of abuse of power by dominant airlines will also be left to CCI, the secretary says.
"It’s for CCI to take a call whether any airline is abusing power. They haven’t told us anything so far, but they keep doing their own in-house studies before reaching out to us," Choubey says.
The ministry is also clear it won’t make any special changes to accommodate Qatar Airlines’ request to start an airline in India. Qatar Airways’ chief executive Akbar Al Baker said earlier this month in Delhi that the rules for starting an Indian airline with a 51% Qatar Investment Authority stake and 49% Qatar Airways stake are ambiguous.
India allows 49% foreign airline ownership of Indian carriers, and since the government of Qatar also controls Qatar Airways, the airline may not get a green signal from the government, Al Baker seems to suggest.
The Qatar Airways chief then said he would lose interest in setting up an airline in a year’s time if the doubts were not cleared.
"It is up to him to go and do his due diligence, our FDI policy is very clear," Choubey says, dismissing any perceived ambiguity. “Ownership of airlines cannot be in foreign hands.”
The aviation ministry is also unlikely to designate Tata’s Vistara and AirAsia as international in a hurry. Both have applied to fly abroad.
The current government has changed norms allowing airlines to fly international against the earlier mandated five years of local flying and a 20-aircraft fleet.
This decision has become controversial now, with allegations that money was paid to get rules changed. The matter is being investigated by the Central Bureau of Investigation (CBI).
While the secretary says the case will be considered on its merit, another ministry official who did not wish to be named says the plan is to let this matter — as also that of giving bilateral rights to foreign airlines — drag on till December, after which the elections will anyway take centre stage.
"The three Cs — CBI, CVC (Central Vigilance Commission), CAG (Comptroller and Auditor General) — are on everyone’s mind these days," this official says. “There are already so many aviation-related court cases going on. Nobody wants any more trouble for now.”
The aviation ministry has also moved a file asking the finance ministry to help the sector on the whole with some sops.
Airline losses have shot up this fiscal, and India's oldest private airline Jet Airways — the weakest of the pack — is making losses of INR14 crore a day.
Jet Airways chairman Naresh Goyal has already visited the aviation ministry, but Choubey says he "has not approached us for any relief".
"We are working on a package," the secretary says without getting into what is being sought. "The broad contour of the package is, what can we do to bring down the cost of operations of airlines?"
Will this be a temporary relief, or something that permanently changes the cost structure of the industry?
"We would like it to be a permanent change," Choubey says.
The biggest cost for airlines is fuel, which is heavily taxed in India. Bringing jet fuel under the GST (goods and services tax) regime and taxing it at 12% could significantly reduce the burden on the airlines.
The aviation secretary also hints that the government will not like to see any airline shut — least of all in an election year. "We would like airlines to keep competing with each other in a manner in which extreme cost inefficiencies don’t hamper their profitability," he says.
Earlier, the government had thrown a lifeline to Ajay Singh's SpiceJet and saved it from meeting the same fate as Vijay Mallya’s Kingfisher Airlines.
While a decision on the relief package for the sector is expected by the end of this month, it won’t be easy to dole out when petrol prices have crossed INR90 a litre in many parts of the country, and Opposition parties are staging protests, demanding petroleum products to be brought under GST.
If the government is able to agree to this package, it could make airfares even cheaper as airlines’ costs will drop suddenly.
A former executive director of Air India, Jitender Bhargava, says any reduction of taxes in other areas could also help the sector. “If the government comes up with a package to reduce operational costs of airlines, it will be a welcome intervention. As it has belatedly recognised the aviation sector as a catalyst for economic growth and a convenient and affordable means of transportation, making airlines financially viable is of paramount importance.
“This could be achieved through lower taxation on ATF (aviation turbine fuel), abolition of service tax on tickets, the government bearing the cost of security at airports instead of the airlines [extracting it from passengers], better lending terms, etc.”
An airline official who does not wish to be named says the government is considering giving some help in loan restructuring besides pushing for the GST umbrella, but adds both are difficult to secure given its priorities.
The untouchables
The ministry is also treading the last lap cautiously and sidestepping most controversial issues.
For example, it does not plan to put any restriction on how many planes airlines can bring to the market, despite some analysts calling for caution owing to the heavy losses triggered by airlines’ massive capacity augmentation.
"We are not putting any cap on capacity because of its huge financial impact for airlines by way of penalties to aircraft makers and lessors," Choubey says.
There are also no plans to place fare caps to prevent any predatory pricing, which the ministry feels should fall under the purview of the Competition Commission of India (CCI). The question of any potential of abuse of power by dominant airlines will also be left to CCI, the secretary says.
"It’s for CCI to take a call whether any airline is abusing power. They haven’t told us anything so far, but they keep doing their own in-house studies before reaching out to us," Choubey says.
The ministry is also clear it won’t make any special changes to accommodate Qatar Airlines’ request to start an airline in India. Qatar Airways’ chief executive Akbar Al Baker said earlier this month in Delhi that the rules for starting an Indian airline with a 51% Qatar Investment Authority stake and 49% Qatar Airways stake are ambiguous.
India allows 49% foreign airline ownership of Indian carriers, and since the government of Qatar also controls Qatar Airways, the airline may not get a green signal from the government, Al Baker seems to suggest.
The Qatar Airways chief then said he would lose interest in setting up an airline in a year’s time if the doubts were not cleared.
"It is up to him to go and do his due diligence, our FDI policy is very clear," Choubey says, dismissing any perceived ambiguity. “Ownership of airlines cannot be in foreign hands.”
The aviation ministry is also unlikely to designate Tata’s Vistara and AirAsia as international in a hurry. Both have applied to fly abroad.
The current government has changed norms allowing airlines to fly international against the earlier mandated five years of local flying and a 20-aircraft fleet.
This decision has become controversial now, with allegations that money was paid to get rules changed. The matter is being investigated by the Central Bureau of Investigation (CBI).
While the secretary says the case will be considered on its merit, another ministry official who did not wish to be named says the plan is to let this matter — as also that of giving bilateral rights to foreign airlines — drag on till December, after which the elections will anyway take centre stage.
"The three Cs — CBI, CVC (Central Vigilance Commission), CAG (Comptroller and Auditor General) — are on everyone’s mind these days," this official says. “There are already so many aviation-related court cases going on. Nobody wants any more trouble for now.”
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